The Local Economic Reaction To The 2017 Arizona Minimum Wage Increase

How have local economies reacted to the 2017 Arizona minimum wage increase, and what should we anticipate in the future? In this article, we explore the topic based on the currently available information.

Prop. 206 Arizona Minimum Wage Increase

Effective Jan. 1, the minimum wage increased from $8.05 to $10 per hour in the state of Arizona. The minimum wage is set to continue increasing incrementally.

In the November election, voters approved the controversial Proposition 206, a measure to ultimately increase the minimum hourly wage to $12 per hour. After hearing arguments in March of this year, the law has been upheld in its entirety and we are continuing to advise all clients to plan as if the measure will take full effect as planned. That means that in addition to the Arizona minimum wage increase that took effect at the beginning of the year, the Arizona minimum wage will increase again to $10.50 per hour in 2018, $11 per hour in 2019, $12 per hour in 2020 and that starting in 2021, the minimum wage may be adjusted on a yearly basis depending on changes in the cost of living. Employees earning tips (like servers) can be paid a full $3 less per hour than the Arizona minimum wage, provided it can be proved that the gratuities they earn at least make up the difference. Businesses operating in cities with local minimum wage standards (like Flagstaff) will be competing with even higher demands than reflected in the Arizona minimum wage increase.

All of this is in addition to requirements to provide paid sick time – at least 24 hours per year for businesses with fewer than 15 employees and at least 40 hours per year for organizations with more than 15 employees.

Effects of Arizona minimum wage increase

Critics of Prop. 206 argued that the economic effects would be devastating. They reason that with employers forced to meet an increased Arizona minimum wage, they would hire fewer workers. On the other hand, Prop. 206 supporters assert that increased spending capacity for Arizona families means more economic activity to offset the increased costs of doing business. Rather than wade into an economic debate, we are more interested in making sure that the businesses we partner with are ready for anything. And so, with more minimum wage increases on the horizon, should we be panicked?

The good news is that it seems most businesses have done a good job adapting to the new legal requirements. Recent data shows that employment has increased in industries that are heavily reliant on hourly workers, such as restaurants and hospitality. In fact, based on calculations of the numbers recorded by the Bureau of Labor Statistics, the same quarter that brought us the first in a wave of Arizona minimum wage increases was also a record-breaking quarter for employment growth in the food service industry. In addition to the 56,200 food service jobs added to the economy (a 6.8 percent increase – the largest in the entire nation), the healthcare industry saw an increase of 11,800 workers in the first quarter of 2017. Other states pushing for their own minimum wage increases are even holding up Arizona’s first quarter data as an example of how a similar increase would work in their own states.

That is not to say that we are out of the woods. One-quarter’s worth of data is not enough to tell for certain whether or not the Arizona minimum wage increase will ultimately gut the economy. When more wage increases kick in between now and 2020, businesses must still take steps to ensure that they will be ready to absorb the additional payroll costs.

Planning for the next Arizona minimum wage increase

Company-specific data should be analyzed on a regular basis to determine which areas can be addressed to improve the company’s viability and bolster the organization’s bottom line. However, when anticipating a minimum wage increase, it is especially important. While reductions in payroll (in the form of layoffs or reduced hours) tend to be a knee-jerk reaction for many organizations, it may be that adjustments in other areas impacting revenue flow could be more helpful. For example, if pricing is not optimized or certain contracts with outside vendors can be revisited, the dividends for the company could be huge. While the person responsible for the day-to-day should be involved in that analysis, it is sometimes helpful to get an outsider’s perspective. Regardless of who conducts the analysis, it has to be someone with a strong head for numbers and for whom you have a high level of trust. This is a type of service we provide to our clients and we would be happy to discuss the ins and outs of your company with you. Sign up for a free consultation and let’s have a conversation about how we can be helpful in getting you ready for the next round of Arizona minimum wage increases.